Tuesday, April 28, 2009

The Sinking Fund

Impulse buying can be the end to all financial plans. Accounts are most likely overdrawn by the end of the month or purchase decisions are regretted. This is the reason for a "sinking fund" for all planned or major purchases.
Sinking funds are simply savings put in one particular place for a specific thing. For example, car tags; each year a car owner must pay the tax on the registration. Each year the tags and taxes are about the same price. Allocating savings each month until the next year saves panic when that time comes. Sinking Funds are a great way to never be in need of money for a must have purchase.
Sinking funds are also a great way to not impulse buy. Perhaps the camera wanted a month ago (as an impulse buy) is not the camera wanted three months after, and there is a better camera for a cheaper price, or perhaps the camera wanted is now on sale and there is money left over from the camera sinking fund to spend or save at a later time. Here are some ideas for such funds: car repairs, home improvement, vacation, Christmas and other gifts, emergency funds, and maybe even a "blow money" fund. Blow money can be used for whatever may come about.
One idea for sinking funds is envelopes, kept in a safe or a safety deposit box. Or perhaps allocated savings plans. ING Direct is a good on-line bank where you can set up several savings accounts, specified for different funds with no minimum requirements.
Starting early enough, no purchase will be unplanned and there will never be panic for unavailable funds.

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